You might have thought the recession that's hampered the U.S. economy for the last two years would have driven back the large European-owned third-party logistics (3PL) companies seeking to compete on American turf. Tough times,after all, tend to thin the ranks. But quite the opposite has happened, and the Dutch, German, Swiss and British logistics giants regard their U.S. business as not only key to their continued expansion, but as a crucial factor in transforming themselves into truly international service providers.
David Kulik, president and chief executive officer of TNT Logistics North America—formerly CTI Logistics, which was bought by Holland-based TNT Post Group (TPG) from CSX in 2000—says he's certainly changed his perspective in the last two years. "We were owned by a North American railroad and sold to TPG to become part of a global network. The change for us is symptomatic of what's going on in the entire industry," he says. "We had operations in Europe and South America that we were managing out of Jackson [Mississippi]. We were still mostly competing with the North American players, and the usual suspects were always bidding with us on contracts." Now, Kulik says, the logistics provider is part of a global company and is bidding against competitors such as Kuehne & Nagel and Deutsche Post.
Exel, now the largest pure 3PL in the world,places great importance on its U.S. operations as one of the centers of its international activities. "At Exel, we would not regard ourselves as a 'European 3PL,' given the strong historic roots of our business in the United States and how it has grown, largely organically, over the last 10 years," says John Dawson, director of corporate affairs at Exel, based in England. "I know we are a U.K.-listed organization, but with over 65 percent o f our revenues sourced from countries outside the U.K. -and now over 35 percent from the Americas—we are increasingly regarded as a global business."
Often, it's U.S.-based customers who are demanding global logistics coverage. Kulik says, from his perspective in the United States, customer needs have changed. "Far more customers are looking for 3PLs with global reach and global capabilities. They want the repeatability and consistency of a service that will yield the same results regardless of geography," he says.
Bruce Edwards, Exel's divisional chief executive for the Americas, agrees. "I'm finding that increasingly customers here are placing value on our international capability. Even if they're not able to take advantage of it at the moment, the sharp folks are realizing that in the future they probably will, so they're starting with us on some domestic projects with the idea that some day they're going to have to pull off something global," he says. Edwards points out that many large companies are getting more international simply through getting larger. "In the last two or three years,there have been at least 15 major mergers in our customer base," he reports. "But, whether it's the result of buying other companies or sourcing differently, they're going to be playing in a different sort of economy."
Third (party) watch
It's no wonder European 3PLs don't want to be pigeonholed as, well, European 3PLs. Logistics markets in Europe have become saturated and therefore not so profitable, forcing the providers to look abroad for business. "From a logistics point of view and an international 3PL point of view, Europe is the third most important market," says Richard Armstrong, founder of the consulting firm Armstrong & Associates. "It's really North America first, then … you go to the Asian markets. The only potential for profits in Europe is in what was behind the Iron Curtain."
"The market's more fragmented in Europe," says Jamie Ward, a business analyst specializing in logistics at analyst firm Datamonitor in London. "There are differences between countries and it's difficult to break down the barriers. That's still affecting things especially when you get into operations like pharmaceuticals where there are still regulatory boundaries between countries."
Although these 3PLs have been talking an international game for some time,it seems the talk is only just now becoming reality. All of them have made significant inroads into the U.S. market through acquisition in the last three years. TNT bought CTI Logistics. Kuehne & Nagel bought USCO Logistics. Exel bought F.X. Coughlin, among others. Deutsche Post bought Danzas/AEI and DHL. Assimilating those companies has taken time.
Competition,meanwhile, comes from home grown companies as well. Federal Express, United Parcel Service and Menlo Worldwide are fighting hard to become international freight and logistics service providers, the better to serve their already massive established customer base in the United States. According to Armstrong & Associates, Fed Ex now covers geographical areas that supply 99 percent of the world's gross domestic product and UPS has "nearly global coverage." Menlo, an operating company of CNF Corp., has logistics operations throughout North America and Latin America and in major points in the Pacific Rim and Europe. The financials also tell an interesting story. UPS reported revenue of $ 31.4 billion for 2002, of which $4.7 billion represented international revenue. That means its presence outside the United States is significant, but it is predominantly serving U.S.-based customers. The same thing goes for Fed Ex, which reported overall revenue of $20.1 billion, $4.2 billion of which counted as international revenue.
With the European 3PLs,however, the financial picture is quite different, Armstrong & Associates says. Deutsche Post World Network (DPWN), which does not break down the figures for DHL, had total revenue for 2002 of $37.3 billion, but $15.4 billion of that came from international revenue, much of it in the United States (these figures will increase if DPWN's intended purchase of the ground network of U.S.-based forwarder Airborne Express, announced in March, is allowed by U.S. regulators). TPG's case is even more extreme, with a total 2002 revenue of $11.2 billion, $10.4 billion of which came from overseas.
Standards issues
One of the challenges for the European 3PLs competing in the U.S. market has been weaving together a smooth information technology system from a patchwork of acquired legacy computer systems. UPS, FedEx and Menlo have particularly emphasized their IT capabilities, and the competition has recently begun to concentrate efforts on aligning their information systems.
TNT, for example, this April launched its TTS project ( "transformation through standardization") across the group. The idea is to standardize all information systems—a huge and expensive task, but one TNT takes very seriously as a competitive advantage. DHL has a similar initiative under way. Hans Toggweiler, chief executive and president of DHL Danzas Air & Ocean, says total computer integration between the companies under the DHL flag is a work in progress expected to be completed during the third quarter of this year.
Kuehne & Nagel is also pushing computer standards hard, both internally and for the IT services it provides to customers. Often customers insist on using their own sy stems, says Klaus Herms, chief executive officer of Kuehne & Nagel, based in Switzerland. "Only when you have standards can you do what we're trying to do—provide an integrated solution from the source to the retailer's shelf. Otherwise you have headaches with different interfacing and high cost," Herms says. Customers that want to go international need to learn the advantages of streamlined computer operations."In the track and trace business, with standards everything becomes easy," Herms says . "Increasingly, people understand it's to their advantage."
In the end, computer standards are merely a way of improving human contact so that internal department s servicing different geographies or industry verticals can compare notes, and customers can keep track of things more easily. DHL , which recently rebranded Danzas/AEI under the DHL name, in July created a "global customer solution group," which is designed to "act in the interest of the customer across all business units and geographies," says Toggweiler of DHL Danzas Air & Ocean, the Newark , N.J.—based subsidiary of DHL, which is in turn owned by Germany's Deutsche Post World Net . "This is not just about customer service, but setting the required service levels for a particular customer across the whole company," says Toggweiler. "We can't afford to have one business unit not service a customer as well as another unit. We want to look at how important a customer is to the company as a whole rather than to individual units."
This is part of a strategy being honed by the European 3PLs to use their American presence to explore possibilities for cross-selling bet ween different divisions. TNT, for example, has a cross-group logistics board that meets once every quarter and communicates informally by phone more often. The different divisions share information about specific customers for whom they 're doing work in one geographic or service area, and discuss ways they could help the same company by involving other divisions.
One for all?
Still, the European 3PLs are shy of pointing to any specific expanded contracts with international customers that clearly come from cross-selling between the old guard and U.S.-based acquisitions. DHL's Toggweiler admits that bringing together DHL and Danzas AEI under one name has implications currently limited to back-office functions and branding. And Kuehne & Nagel's Herms says currently the cross-selling opportunities tend to come between different service areas—for example, getting a customer who uses warehousing services originally won by USCO Logistics and selling it Kuehne & Nagel's freight forwarding service.
However, the future should see these companies selling more services in more countries, based on expanded presence in the United States. All agree China presents exciting opportunities, especia ly as the hub of a growing intra-Asian trade in which U.S.-based manufacturers are likely to take a stake. Meanwhile, India is becoming a major exporter to the United States and Europe. "We know where the market is going; it's a question of what will the customer purchase in each area and how we grow our market s," TNT's Kulik says. "We're all racing to gear up our U.S. operations and leverage the huge market available to us in the United States."
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.